Housing finance system roiled by maze of investigations: Here's a guide

Mel Watt is under at least two investigations for allegedly making sexual advances on an employee during conversations ostensibly about her career and salary concerns. | J. Scott Applewhite/AP Photo

The U.S. housing finance administration has been rocked by a series of investigations that have raised fresh doubts about the federal government’s management of the vast system that supports most of the nation’s mortgages.

The country’s top housing regulator is under investigation for alleged sexual harassment. The watchdog looking into his behavior is herself under a probe — partly over claims that her office is too cozy with his. And the outgoing CEO of the largest mortgage financier was faulted in a report for failing to disclose potential conflicts stemming from a romantic relationship.

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Congress is also getting involved, with the House Financial Services Committee planning to hold a hearing in September on the oversight of the system.

The revelations of alleged misconduct are emerging against a backdrop of pressure to overhaul the entire system. Federal Housing Finance Agency Director Mel Watt’s term expires in January, and the Trump administration is expected to replace him with someone who takes a dimmer view of Fannie Mae and Freddie Mac, the dominant mortgage-finance companies under his watch. The investigations could boost the case for reform.

Here’s a guide to the allegations:

Watt: investigated for alleged sexual harassment. Watt is under at least two investigations for allegedly making sexual advances on an employee during conversations ostensibly about her career and salary concerns. The employee contends that FHFA leadership is withholding a promotion from her in retaliation for reporting her claim.

The U.S. Postal Service is conducting the administrative investigation for FHFA — the agency’s Equal Employment Opportunity office would normally handle it, but since the office reports to Watt, it referred the matter to outside investigators.

FHFA Inspector General Laura Wertheimer is pursuing her own investigation. That probe kicked into higher gear on Thursday, when the inspector general’s office successfully sued to compel the complainant, Simone Grimes, to comply with a subpoena for unedited audio files and documents.

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Watt, a former Democratic congressman from North Carolina, was appointed by President Barack Obama in 2014 to lead the independent agency. Over the course of his tenure, Fannie and Freddie have expanded their footprint — they have a combined portfolio of $5.4 trillion — and developed new products and programs, leading critics to label Watt a captive regulator.

FHFA inspector general: probed for alleged misconduct. Wertheimer, the FHFA’s watchdog, is herself under investigation for alleged misconduct after complaints that she bowed to pressure from Watt to weaken her office’s oversight. Wertheimer also allegedly disparaged employees and tried to intimidate witnesses, according to letters and emails obtained by POLITICO.

The Council of the Inspectors General on Integrity and Efficiency, which oversees IGs across government agencies, launched the Wertheimer investigation in March after receiving employee whistleblower complaints and referral letters from two Senate committees. The Office of Special Counsel has conducted a similar probe.

The inspectors general council told Wertheimer’s lawyer that it was investigating an allegation that Wertheimer had coerced auditors to accept buyouts; the office is currently half the size it was when she took over in 2014.

The investigation is also exploring allegations that tied her actions to Watt, saying he had threatened to cut Wertheimer’s staff and budget because he was unhappy with critical reports, a complaint that she used as grounds for making decisions, according to a letter obtained by POLITICO. Employees in the IG’s office vigorously defended Wertheimer and their oversight activity in interviews.

Fannie Mae CEO: stepping down. Fannie Mae announced that Timothy Mayopoulos resigned, three days before the inspector general published a report faulting him for failing to fully disclose potential conflicts arising from his relationship with an executive at the credit reporting company TransUnion.

Mayopoulos had recused himself from any business between Fannie and TransUnion, where his girlfriend, Heather Russell, is the chief legal officer. But the watchdog rebuked Mayopoulos — and Fannie — for not flagging a possible conflict involving a major credit-scoring project that could benefit TransUnion.

The IG had previously called for Mayopoulos to be disciplined in a March 2017 report that found he failed to promptly disclose his relationship with Russell when she was hired as the general counsel for Fifth Third, a mortgage lender with business before Fannie.

Fannie and Freddie Mac buy mortgages, wrap them into securities stamped with a government-backed guarantee and sell them to investors. The government seized control of the companies in 2008 to prevent their collapse during the housing crisis.

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